Exam 5

Question 1

Which of the following would NOT be an important consideration when conducting a capital needs assessment for a client?

Answer 1

The amount of anticipated volatility in the marketplace

Question 2

Analyzes a client’s future goals and needs. A client’s life expectancy, the rate of inflation, and her earnings will all affect it.

Answer 2

Capital needs assessment

Question 3

Tend to have large amount of trading activity and narrow spreads

Answer 3

Liquid/efficient markets

Question 4

Tend to have wide spreads

Answer 4

Inefficient markets

Question 5

What is the best hedging strategy if a client is short 1,000 shares of common stock?

Answer 5

Buy calls

Question 6

It is a systematic, fixed-dollar method of investing

Answer 6

Dollar cost averaging

Question 7

Six months ago, an investor purchased shares of a mutual fund and he recently received a long-term capital gain distribution from the fund. What is the tax implication of the distribution?

Answer 7

The distribution is taxed as a long-term capital gain regardless of the fact that the investor has owned the shares for less than one year

Question 8

A common shareholder is not entitled to

Answer 8

Appoint officers of the corporation

Question 9

What is a characteristic of a Subchapter S corporation, but is not a characteristic of a limited partnership?

Answer 9

The number of potential investors is limited

Question 10

The following methods of ownership will avoid probate

Answer 10

Community property
Joint Tenants with Right of Survivorship
Pay on Death

Question 11

XYZ broker-dealer is located in State A, where it maintains its corporate headquarters. Under the Uniform Securities Act, XYZ would not meet the definition of a broker-dealer in State B if it

Answer 11

Has no office in State B and only sells securities to an investment company located in State B

Question 12

Warren is a growth-oriented investor who is bullish on the long-term prospects of the U.S. stock market. He has diversified his portfolio in the following ways: individual stocks from various sectors, an S&P 500 Index fund, an aggressive growth fund, a fund of funds, and a variable annuity where he has invested in mid- and large-cap stock portfolios. What type of risk is his portfolio most subject to?

Answer 12

Systematic risk (Market risk)

Question 13

An investor has a long-term goal of saving for his daughter’s college education in 15 years. He is planning on investing regularly over the next several years in the Pluto Growth Fund to attain that goal. The investor acknowledges that he has not had much success picking individual stocks or predicting the market. Which investment strategies might be most appropriate under these circumstances?

Answer 13

Dollar cost averaging

Question 14

What statements are true regarding the buyer and writer of a straddle?

Answer 14

The buyer of a straddle expects the market to fluctuate
The writer of a straddle expects the market to remain stable

Question 15

In a qualified retirement account, which of the following is NOT an acceptable qualified default investment alternative (QDIA)?
A target date mutual fund
Securities of the employer
A balanced mutual fund
A product that’s managed by an investment adviser

Answer 15

Securities of the employer

Question 16

The major disadvantage to a limited partner in DPP is

Answer 16

Lack of liquidity

Question 17

A small business owner enters your office with multiple insurance policies issued by many different companies. She has over $600,000 of coverage that expires in five years. Which of the following statements BEST describes the policies?

Answer 17

The policies are term life